Definition issues dog Charities Act reform

The Department of Internal Affairs (DIA) is working its way through more than 350 submissions as part of the government’s review of the Charities Act 2005.

Craig Fisher

Craig Fisher

A summary of submissions to the DIA’s discussion paper, and the submissions themselves, will be available on its website later in the year. In the meantime, the sector has a new minister, Poto Williams.

New Zealand has more than 27,000 charities – a stunning number for a country of its size and population. It indicates the charitable/not-forprofit/ third sector/for purpose sector is important for Aotearoa New Zealand.

A common theme from the consultation process is that the DIA’s scope has been too narrow and a law commission review of the definition of charities might be required.

Rather than relying on the definition from a 1601 statute, and subsequent case law, some are calling for a first-principles review of what should be considered charitable in New Zealand in 2019.

A law commission review would be a more independent process than one driven by the regulatory body. It is an important issue and should not be rushed.

But the review was never likely to be a panacea for all issues in the sector. The minister made this clear when announcing the review last year, saying he wanted a pragmatic, achievable process that was completed in a reasonable timeframe (ie, within the term of the current government). So, the terms of reference were set to achieve those aims.

Key items included:

  • whether any additional purposes are needed;
  • the extent to which charities can advocate for their causes and points of view;
  • Regulatory framework matters, such as:
    • the role, functions, structure, powers and accountability of the regulator;
    • the purpose and content of the public register;
    • offences and penalties;
    • mechanisms to challenge decisions;
    • regulation of third-party fundraisers.
  • matters relating to registration and deregistration
  • obligations of charities and individuals to their governing bodies.

Key items excluded:

  • the definition of “charitable purpose” – ie, the four heads of charity (relief of poverty advancement of religion, advancement of education or any other matter beneficial to the community) will not be reviewed;
  • tax exemptions. These are covered by the Income Tax Act 2007;
  • regulation of the broader not-for-profit sector;
  • contracting arrangements for government services;
  • The legal structure of social enterprises. DIA is working on this, separately from the review.

When enacted in 2005, the Charities Act was a significant piece of legislation. It introduced the regulation of charities, established a Charities Commission and resulted in the creation of an excellent website with details of all registered charities.

Also promised with its enactment was an early post-implementation review. So, it was pleasing in May 2018 when the then Minister for the Community and Voluntary Sector, Peeni Henare, finally announced a review to ensure a “fit for purpose” Charities Act.

Why we even need a Charities Act has been questioned by some in the sector. “Surely these organisations are doing good for society and should be left to it, free from state regulatory interference,” is the cry.

The counter-argument is that charities receive public support and a considerable public benefit. This includes ongoing public support (financial and otherwise), along with an income tax exemption granted by the government on the public’s behalf.

But public support exists only if there is public trust and confidence in the charitable sector.

In my experience, trust and confidence in charities often appear to be more fragile than in the business community generally. For example, a scandal involving a charity will often have more immediate and direct adverse financial consequences for a charity than it would for a business.

A scandal also tends to tar all charities with the same brush. So, regulation plays an important role in protecting this public benefit for the good of our society.

In a nutshell, you could say the regulatory framework established by the Act is set up to facilitate a public register of charities.

This enables transparency and the ability to take action against any charities behaving non-charitably, although the regulator has relatively limited powers in that regard.

The purposes, found in section 3 of the Act, are:

  • to promote public trust and confidence in the charitable sector;
  • to encourage and promote the effective use of charitable resources;
  • to provide for the registration of societies, institutions, and trustees of trusts as charitable entities;
  • to require charitable entities and certain other persons to comply with certain obligations;
  • to provide for the board to make decisions about the registration and deregistration of charitable entities and to meet requirements imposed in relation to those functions;
  • to provide for the chief executive to carry out functions under this Act and to meet requirements imposed in relation to those functions.

Charities do considerable good in our country. For our society’s health we need a strong and sustainable charities sector. So, it is great to see this review although legislation is only part of the answer.

Another way for lawyers to get involved in the sustainability of the sector is by attending and participating in the 2020 New Zealand CLAANZ Charity Law, Accounting and Regulation Conference 2020.

It will be held from 30 April to 1 May 2020 at Te Papa and the theme is Sustainability of charities and their work. Details at events-nzconf2020

Want to know more?

  • Stay up to date by subscribing to updates & visiting the review website: charitiesreview
  • Have your say via select committee when any draft legislation works its way through the House, expected in late 2019 or early 2020.

Craig Fisher FCA is a consultant at RSM and an ADLS council member. He is a specialist in not-for- profit and charitable-entity issues, a trustee of several charities, and a member of CAANZ’s Charities and NFP advisory group

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